Category Archives: Strategy

Product Management- How to develop a ROI model

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This is one of the topics, which causes certain people to either to scratch their heads or completely ignore it (as it is usually associated with the price of something which by the way is completely wrong). I apologize for sounding clichéd but return on investment is about value not price.  Imagine this scenario, I am watching a hockey game on TV and at the final 10 minutes of the game my wife requests that I put the dishes that are in the sink into the dishwasher. Now I am in a quandary do I forgo watching the last 10 minutes of the hockey game to please my wife or miss out on the winning moments of my favorite hockey team and miss out on crucial water cooler conversation at work. Believe it or not this is also a ROI problem. ROI is an integral part or our day-to-day lives. Not all opportunity cost is financial as evinced by the scenario I presented, although it does make the lives of a lot of people interesting if outcomes such as this could be measured.

So when you start looking at deriving a ROI model, you need to go back to the basics. You again start with what is the problem you are going to solve? ROI represents a customer’s expectations from their investment measured against   goal elements like time, money, or resources along with the status of clients to the business. 

Scenario

Imagine this scenario you are a large bakery chain and your baked good are selling like “hot cakes”. The line from the bakery is so long that it goes on for several blocks.  The baker in the front of the line is having a hard time keeping up with the orders. The bakery manager is can’t optimize his supply chain enough and continues to pressure the point of sale staff i.e. the bakers .  The president of the bakery chain states that because of this inefficiency in their supply chain they are losing close to $600,000 at each branch and the profit per branch is 2% of revenue.  As you are aware in the bakery business every penny of profit matters since it is a low margin business.
Now you are provider of an automation system that will solve this problem. Now I want you to understand that solution cost is not the only element to consider when developing a ROI model. There are other elements involved as well such as
  • ·      Solution acquisition costs
  • ·      Maintenance costs
  • ·      Cost of integrating the system into the existing system
These costs you can classify as direct costs and then there are indirect costs such
  • ·      Adding System administrator to the headcount
  • ·      Training to the bakers on the new system
So we now know what the problem is with this bakery and we have seen problem from the baker’s, manager’s, and the president’s perspective (this element is key, you need to empathize with the various stakeholders that your are going to solve the problem for. This is one of the key components for designing your solution as well, checkout my earlier blog).  Let us now proceed to put together an estimated ROI model (it is estimated because it is not validated by the client or even realized via the implementation).
Our solution costs
Bakery Savings
Solution Cost
$100,000
Revenue/Bakery
$600,000
Maintenance Cost
$20,000
Gross Profit @ 2%
$12,000
Integration Cost
$150,000
Branches
100
Total Solution Cost
$270,000
Gross Revenue
$60,000,000
Indirect costs
One Headcount
$150,000
Training all bakery staff
$100,000
Total ongoing costs
$250,000
Total Cost
$520,000
Savings per year
1,200,000
Total Payback
Within 5 months
I understand this is trivial but something like this can actually resonate with a potential client in a presentation. If you have been listening to your community of potential clients to draw up something like this is not hard.
The above ROI model is an estimated ROI model of what the solution might potentially save the client. The alternative is that the client continues lose important clientele or go with a suboptimal solution from a competitor (Maybe this could be a topic for a future blog on competitive analysis, if the readers of my blog demand it).
It would be amiss if I did not provide proper attribution to the book  “The Four steps to the Epiphany” by Steven Gary Blank. I still believe that this is the best reference to client development.
As for what I did when faced with the quandary mentioned earlier in the blog. Well I am still happily married and I know my priorities really well J. I can participate in a different topic at the water cooler @ work. 
You can contact me @ kkanakas on twitter with your comments

Product Management – Jobs to be done

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You can do a lot by observing. you can unearth value by just observing people.  Seeing how they do things or work around things etc. I am reminded of an article written in Sloan Management review by Clay Christensen and other authors of a simple concept called Jobs to be done. Recently I was reading a book where that same statement was referred to again ( the book is called innovator’s toolkit by David Silverstein, Philip Samuel, and Neil DeCarlo) and the statement was “Most companies segment their markets by customer demographics or product characteristics and differentiate their offerings by adding features and functions. But the customer has a different view of the marketplace. The person simply has a job to be done and is seeking to “hire the best product or service do it” or concoct something with an existing solution to address the problem.
                                                               Jobs to be done is a simple concept,  yet sometimes we end up complicating things beyond all the possible means. In some cases when you are building products and you are internally focused or being driven to neutralize a competitors advantage, there is a tendency to “hunker down” and look internally  and assume what the customer perceives to be valuable. Because customers might be buying a competitors products in droves but it does not mean that you start looking inwards and come up with things that do not make sense.  At such times you should be encouraged to look more externally and identify other elements that are frustrating users. Think about it. How did innovations like micro-finance or  mobile commerce come to be? There was a job that was being addressed well by the big players and little players saw a niche filled the gap. The “Job” in the case of micro-finance was to provide financial services to communities with little income. Now I am not encouraging people to go create another NINJA loan market (we already have evidence that does not work), but what micro-finance did was that it encouraged poor villages in South Asia become entrepreneurs and especially enable women in that part of the world to come out of poverty.  I am amazed how such a complex idea so succinctly  stated still continues to make such a difference in peoples lives.

Jobs to be done Old Solution New Solution
Provide
financial services to communities with little income		 Get people to put assets as collateral and charge high interest Provide the ability for the entire community  of villagers to get smaller amounts of money that they can start a business  or have the ability to payback

               The case I am trying to make is that innovating is not just the realm of the hip and  the cool but it is also about practical utility. Anything that is practical and designed in a empathetic way has a higher chance of success than something that is hip and cool and introduced way to early in the market space. I think in the current day and age where technology is improving by leaps and bounds we are losing sight of simple things that can drive innovation.

 I would encourage you to try it out yourself and let us have conversation. I can tell you based on my personal experience it has helped me to convey some of the complicated things in life in simple terms.
As always appreciate your feedback via Linkedin, Twitter, or you post your comments in the comments  section of this blog.

           

Strategy – Power of Empathetic Design

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When I was soliciting ideas for my next blog, I kept hearing things about design and its ramifications to a product user interface. To me the term design is above and beyond just the user interface of a product . I agree user interface is a key element but design has elements that go far and beyond just a simple user interface or intuitive product abilities.
Good products are designed with empathy or as I call it empathetic design. So what is empathetic design, new products and features only take off when people find useful things to do with the product or service. People who start with design in mind are not there to create new industry, they are there to create an experience that resonates close to their heart and the hearts of several other people (think about AirBnb.com). It is true that most design elements start with a frustration that an individual faces but is that problem faced by several other people. So the question is how to validate that problem? 
 As Eric Reis says in his book “Lean Startup“, you need to build something called as the minimum viable product “MVP”. Get the minimum viable product our there in the hands of people and observe what they do with your product and get validation. Empathetic design is about doing things that you can focus on and doing them well.  But when you focus on a particular feature or function you need to focus in the broader picture as well. Similar to what Tim Brown wrote in his book “Change by Design“, when Amtrak came to IDEO to design the high speed rail car, IDEO did not only focus on designing the rail car, they also focused on the entire experience of travel by train from the curb-side.  Now that is something (BTW even as I write this blog, in China they have a high speed train from Shanghai to Beijing that is faster than the acela service from Amtrak, but I bet you the curb side experience maybe significantly different between both)
As mentioned in prior paragraph focus on a few things and do them well but ask yourself these questions “are the few features that I am working on are they about to solve a problem worth solving ? and are people willing to buy your solution since the problem is pervasive?”. As I paraphrase what Larry Page said in his interview with Charlie Rose “Innovation is not innovation if it cannot sell” So to that effect empathetic design depends significantly on the premise of open value co-creation. (Apple is an exception, but their folks observe their target consumers a lot of which I proudly claim to be one)
One of the companies I admire is P&G from a value co-creation perspective. This is one company that has figured out a way to make decent margins on a commodity product “the detergent”. They find ways to sell detergent to their constituents in so many different and innovative ways (the other company that I admire is Coca-Cola, I mean sugared water really?). Going back to P&G, the company participates in many competitive industries which initially thrived on patents and proprietary technologies  etc. Now P&G openly courts innovations on their products via internet with their connect+develop program. The reason why P&G and the likes make decent margins, is because of their focus on the overall experience i.e. Some one wants to wash with Cold water there is Tide Cold etc. If there a defective box or a canister, the stores where their products are sold take the product back no questions asked (similar to what Amazon does with the overall experience). These are things that help people gravitate towards these products/services and continue to be repeat clients.  The net of what I am saying is that empathetic design is a profitable venture as long as you look at the experience and the overall utility of the product/solution.
If you observe carefully empathetically design products build on top of other ideas (in most cases existing ideas that are incomplete from an experience perspective). They usually simplify/ refine on the existing idea and in most cases it usually works. Think about it, was the iPod really a new kind of a mp3 player or was it that the iPod provided a way to carry all my music and listen to when I want or where I want. To complete the experience I have a legitimate way to download content for it as well. Now that is empathetic design at its best. 

The bottom line is empathetic design keeps the user in mind and whether you use cases in development or any other methodology in any other department it will be doomed to failure if all departments fail to have the same understanding of the problem the company is going to solve for the user.

(BTW All the companies I mentioned here are just to make a case, I am not endorsing that my experience is commonly shared, but if you look at their 10K, it proves my point. Your experiences may vary)
You can contact me @ kkanakas on twitter with your comments

Product Management – What makes a great product ?

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Every now and then a product comes along that changes the way we view and do things. The product becomes a natural extension ourselves and the way we express ourselves. In most cases these products are not net new thinking (i.e. invention) but they innovate upon existing ways. In most cases if you are like me you end up thinking, Duh!! what didn’t think of that!

      Yes, I am little over analytical on matters such as that and sometimes the window opportunity goes away. But there are also times where I don’t think much and just do it, those moments sometimes payoff  but most of the time I end up saying maybe I should have gone slow. In my line of work I get to see a lot of complexity in how we build software and there are a lot of moments where we over think a problem, make the problem more problematic than it already is. After going through several discussions around this topic with folks that much more smarter than me I have narrowed them down to 3 things:

1- Product must be simple 
This to me is the golden rule. When you make your end user or client think for just the basic functions you have lost them. The immediate gut reaction is “If the basic function is so complicated, I wonder how the complicated functions are”. And once that mindset takes hold it is a uphill task to regain any lost ground.  I am not saying that you make your product idiot proof, because that would be wrong and painting everyone with the same broad brush. There can be features that require some advance thinking but those things are not features that everyone uses everyday i.e. the HotSpot  feature on Smart phones, how many people truly know how to use that?

2- Product must understandable 
To this day I have not figured out what was the purpose of the scroll lock key on a keyboard and why is it so important to keep the key on a standard keyboard in the first place? When you don’t make products understandable for basic functions, it makes the end user feel like the product is talking down to them and somehow questioning their intelligence. Don’t do that, you might start alienating people without even knowing it.

3- Product must be complete
Last point is when you think of the basic function or whatever basic scenario you are delivering. Make it complete. A great example of a complete product is a power utility company, when you have electricity the only thing you worry about is flicking the switch and the power comes on.  You don’t even think about how the power gets transmitted to your home. That is a complete product and definitely miss it when it not there because it has become such an integral part of your life

These are just some of my musing on how a product or service ought be delivered. There are several great examples of these ideas in the market place today. Just think of them if these products did not have these capabilities would you have incorporated them into your daily lives.

Strategy – Is Standardization is good thing? I think not!

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When some one says Standards or Standardization, what comes to mind? Maybe something that is well known or accepted. In my mind the term commodity comes to mind, which means when something is a standard you have to work really hard to differentiate yourself. This problem is even more acute when you develop products within the confines of your organization.  The general model that worked in the past was that when people developed in a waterfall model. 
                   Standardization also means everyone can do what you do just as effectively and in a cost efficient way. In short when you have a Standard is easy to duplicate what you do and then worst thing happens, you compete on price and not on value.

Value  =  Worth/Cost 

Based on the formula, when you standardize i.e. a standard way of doing things. This means it can developed cheaply and value diminishes because there are many suppliers in the market place that do what you do and hence the worth of what you do lessens and hence value is lowered. In the above formula  worth can be expanded to the following (thanks to Baldor electric company)

Value(product) = (Quality(product) x Service(product)) / ( Cost(product) x Time(product))

So if the quality (from your clients perspective) of your product is indistinguishable from the competition and if the services to implement your product are expensive or not (even though it is standardized). Cost to make the product is less due to standardization and the time to make the product might even be less. You might be able to eek out some value but that value proposition is temporary, eventually (based on the above formula) the value number drop below zero and your product will be a commodity (because it already on a downward trajectory). 
 Standardization is not all doom and gloom, look at it another way if you want to broaden adoption then  go for it (you might not make a significant amount of dollars in the process but people usually recognize the utility of the product). Now  broader adoption can happen if you develop something that your client base values but if you are stuck between  a rock and a hard place, standardization maybe your only option.
Some people may argue that the Windows operating system is a standard and it is still  making money for it’s company, to that I would say yes. But in it’s hey day the switching costs were high for an average user which is why the Windows Operating System enjoyed a high value status. Today there are a lot of substitutes that provide a standardize UI experience, which is why there is now Windows 8 in order to differentiate itself from the standard operating systems.  When you fall into this kind of commodity trap the best way out is to disrupt yourself otherwise if you don’t your competition will do it for you and it will be too late for you to react.
Appreciate your thoughts on this one.
You can contact me @ kkanakas on twitter with your comments

Strategy – What is Strategy ?

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Every time I hear or read the word “Strategy”, I have to pause and think, what is the person actually saying. Based on my assessment in most cases the term tactic passes as Strategy. But why is that ? You might say. Because Strategy sounds better, take a look at the following exchange that I overheard while I was shopping at a stationary store:
Person 1: We provide coupons help bring customers to our stores 
Person 2: Oh yeah, how has that strategy worked so far ?
Person 1: Well it paid off big time on black friday 
                                 What is wrong with this exchange. I was tempted to interject, but I stopped because it was a conversation between 2 people and they did not ask me for my opinion and secondly even if I was asked for my opinion I would have not been able to articulate it well. Why? Because their exchange had irritated me so much and along with the fact that my brain was flooded with so many ideas to correct these guys that my mouth would have not been able to keep up. I would have ended up sounding a like fool instead. 
                          But that exchange between the two people highlighted something that I deal with everyday. There are so many people that use the term strategy to make their idea (i.e. tactic) sound important. I am not saying that strategy is something that cannot change, it can and it should, what I am going to share in this blog post is the way I classify the term strategy. Strategy is all about capturing value i.e. you try to find a section of the market that is underserved or not being utilized and you build a product or service that generates value to the customer in an efficient, cost effective and profitable manner.  Strategy is ultimate simple word that hides a lot of complexity. Since humans are simple beings we tend to confuse a tactic as strategy (BTW just of the record that store providing coupons  to it’s customers was actually a tactic not strategy, the strategy of the store might be  to increase the sales per sq. foot or something) .
                       Strategy has its roots in  Economics, Organization Design, Finance, Accounting (yes Accounting), Marketing, Statistics, Supply Chain, and Sales.  So Strategy cannot work in isolation even when someone says “I am developing a Sales strategy”, it is assumed that the other elements have been optimized enough to support a particular sales strategy (a sales play is not strategy it is a tactic).

So what is a tactic ?  Tactic could either product, promotion, or service  it is the execution arm of strategy and tactic (product/service) can continue to change at a greater pace than strategy.  Strategy is turn is built upon a vision and hence strategy can change because it all about capturing value but maybe not at the same rate as a product (strategy is not about increasing sales. If you provide value the sales will follow). Vision of a company usually takes longer to change.
                                  Most of my friends know that  I am an Apple fanboy and it is not just because I am addicted to their products but Apple is one of the few companies that illustrates these points well (BTW I am not being paid by Apple to write this blog, I just love what they do).
Apple’s Vision: Enrich peoples lives with their products
Apple’s Strategy: The best integrated experience of software, hardware, and services
Apple’s Products: I think we all know these really well

Other companies that exhibit these traits are  Amazon, Johnson & Johnson, Brembo,  Lincoln Electric, P&G  etc. There are a lot a good companies that understand such distinction.

Maybe next time when I hear someone talk about coupons as a strategy, I might be able to collect my thoughts better and explain the difference.

(BTW I am not claiming that I am in expert in strategy or that  I know enough about strategy. Like the blog says these are just my musings. If you find something else that has better explanation of strategy please let me know)

You can contact me @ kkanakas on twitter with your comments